Bitcoin’s price fell back below $42,000 on Tuesday and was trading at $41,633 in the mid-afternoon, as the market sought footing for the leading cryptocurrency after a rough month of declines. Bitcoin is down about 1.4 percent over the past 24 hours, according to data from CoinMarketCap.
Bitcoin’s decline comes amid a fall in other major financial indexes. The S&P 500 was down about 1.7 percent in late trade, while the Nasdaq fell about 2.3 percent. Meanwhile, a key measure of risk – the CBOE Volatility Index, nicknamed the VIX – was up more than 18 percent.
Bitcoin has been in a funk since the Federal Reserve’s early November meeting, when the central bank announced that it would begin tapering its purchases of bonds, reducing stimulus in the financial system.
That downtrend continued through much of December and into January. After peaking above $51,000 in late December, the digital currency fell to about $41,000 in early January and has spent the past 10 days hovering around $42,000, as the market looks for direction.
It’s been a similar situation for Ethereum, the second-largest cryptocurrency by market capitalization. After setting a new all-time high above $4,800 in November, the price of the digital currency steadily eroded through December and into January. Ethereum was trading at $3,117 in the mid-afternoon.
Solana, another rival cryptocurrency, has fallen nearly 50 percent from its all-time high of $260 in early November. Solana’s price traded as low as $135 on Tuesday before bouncing back above $137.
The near-term prospects for cryptocurrency may not be so rosy either if the market is looking to depend on liquidity from the Federal Reserve. At its December meeting, the Fed announced that it was increasing the pace of its taper, purchasing even fewer bonds than it had projected in November. The new pace means the Fed will stop buying bonds by March 2022.
From there, the Fed has said that it will eventually raise interest rates, as conditions warrant.
“With inflation having exceeded 2 percent for some time, the committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment,” said the Federal Open Market Committee in a prepared statement.
Bitcoin peaked at $68,990.90 in early November, but the price has steadily weakened since then. Nevertheless, Bitcoin remains atop the list of most valuable cryptocurrencies by total value.